The pulse of a subdued housing market was felt as the Mortgage Bankers Association revealed that the volume of mortgage applications remained relatively unchanged last week week, falling by 0.1% versus the previous week. Compared to a year ago, volume is down by 18% and refinances are down more than double that amount at 37%.
Rising rates in conjunction with a low housing affordability index has dampened the housing market even at a time when the capital markets are in the midst of a raging bull stock run.
“Mortgage application volume was little changed as mortgage rates remain within the narrow range they have been in the past several months,” said Mike Fratantoni, MBA’s chief economist. “Home prices, while decelerating, continue to rise faster than household income.”
Since hitting a peak in January, the housing affordability index has been on a downward trajectory, which could go even lower as the Federal Reserve is primed for more rate hikes this month.
Rising rates have been paired with a marked increase in real estate prices as of late, which have put the clamps on summer real estate activity where sales and purchase transactions typically experience an uptick. According to the NAHB/Wells Fargo Housing Opportunity Index (HOI), this combination of high prices and interest rates helped to bring down housing affordability to a 10-year low in the second quarter of 2018.
After the financial crisis and subprime mortgage collapse, home prices took an unceremonious fall as millions of homes faced foreclosure and were sold at heavily-discounted prices. Home prices hit a floor around 2012 and began to recover at accelerated levels, pricing out many prospective homebuyers.
The national median home price jumped from $252,000 in the first quarter of 2018 to $265,000 in the second quarter — the highest quarterly median price in the history of the HOI series.
“The recovery in housing has been really slow to get back on track,” said Mark Vitner, managing director and senior economist at Wells Fargo Securities. “The numbers are all moving in the right direction, but they’re not moving there very quickly and I don’t think that’s going to change all that much.”
Related: Richmond Fed President Says Rates Must Keep Rising
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